Why the U.S. Dollar Is Vulnerable to Decline Now 71 comments
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The Technical Outlook
If we observe the $USD graph for March 2, 2009, we see that the USD has just broken above the resistance level of 88. Will this mark the beginning of a new run higher in the U.S. dollar? Currently the U.S. dollar is benefiting from the propaganda of other countries (i.e. China), political games, intervention of the Exchange Stabilization Fund, and the foolish actions of the Bank of England [BOE] and the European Central Bank [ECB] which have caused Europeans to flee the Euro and the Pound Sterling.
However, fleeing the Euro and the Pound Sterling for the U.S. dollar is akin to fleeing the Lusitania for the Titanic. All three currencies are sinking ships and fleeing one sinking ship for another sinking ship is just not intelligent and is destined to end poorly for all involved parties.
Therefore, I believe that this subsequent “breakout” above 88 will be short-lived. While the U.S. dollar may meander higher for a short-time longer above 88 as the U.S. Treasury and the Exchange Stabilization Fund reach deeper into their bag of monetary tricks, I do believe that when it breaks back down below 88 sometime shortly, the retreat will be marked by periods of extreme volatility and rapid decline.
On a subsequent decline below 88, which in my mind is imminent, I have noted an important level of intermediate resistance at around 81-82 in the above chart, as this was the floor that existed for three years before the USD plummeted below it in 2007.
If it breaches this level, the next point of resistance would be at 76. If the USD breaches 76, then the bottom would be anyone’s guess at this point. This breach may take some time to develop, but right now, I would have to say that the dollar’s breakout above 88 is likely to be a false breakout.
However, my belief in a sharp, and at times, violent decline in the dollar’s not-so distant future is not based upon the above technical analysis so much as the political clues that are beginning to slowly rise to the surface in not so aboveboard comments made by other nation-states. So even against the unsound and increasingly risky Euro and Pound Sterling currencies, betting on the U.S. dollar is still a very risky play at this juncture.
The More Important Political Outlook
On February 11, 2009, the Financial Times out of London reported:
“China will continue to buy US Treasury bonds even though it knows the dollar will depreciate because such investments remain its “only option” in a perilous world, a senior Chinese banking regulator said on Wednesday. China has used the dollars it accumulates selling manufactured goods to US consumers to accumulate the world’s largest holding of Treasuries.”
“Mr. Luo, speaking at the Global Association of Risk Management’s 10th Annual Risk Management Convention, said: ‘Except for US Treasuries, what can you hold?’ he asked. ‘Gold? You don’t hold Japanese government bonds or UK bonds. US Treasuries are the safe haven. For everyone, including China, it is the only option.’ Mr Luo, whose English tends toward the colloquial, added: ‘We hate you guys. Once you start issuing $1 trillion-$2 trillion [$1,000bn-$2,000bn] . . .We know the dollar is going to depreciate, so we hate you guys but there is nothing much we can do.’”
This is my analysis of the above statement. If you have ever played poker before, you know that Mr. Luo is bluffing to conceal the true intentions of the Chinese government. If you are planning to dump a significant portion of assets (U.S. Treasuries) that you believe will be heading towards massive depreciation, the last thing an intelligent market player would do is to tip his hand before executing his plan. Instead, an intelligent player would tell the world what he wants the world to believe, i.e., that he has no choice but to continue to hold U.S. Treasuries while he makes alternate plans to offload them. The monetary crisis that is the root of all global economic problems today is a game with massive stakes at hand, and no player in this global game, even a key one such as China, is going to reveal her true intentions.
That said, I imagine that Mr. Luo is not a very accomplished poker player, because it appears that he played his bluff very poorly. If I were him, I would have not said another word after telling the world that “U.S. Treasuries are the safe haven.” Instead, Mr. Luo ruined his bluff by trying hard to convince us that China has no options with his statement: “We hate you guys…we hate you guys but there is nothing much we can do.”
After reading this statement, I’m more convinced than ever that China is aggressively seeking to offload their U.S. Treasuries and to make the first move in this game of Russian roulette in the currency markets. In essence, the Chinese government is most likely currently taking actions opposite to what they have publicly stated and now we can almost count on the fact that they will dump massive quantities of U.S. Treasuries in the near future.
Consider this following story out of Australia on February 12, 2009:
“BHP Billiton, the world’s largest mining group, is set to crash the Chinese Government’s $19.5 billion (£13.5 billion) bailout of Rio Tinto (ASX: RIO.AX). Rio, which fought off a hostile bid from BHP last year, will announce at 6am today that it has secured a capital injection of $19.5 billion from Chinalco, the Chinese state-owned metals group. That will be China’s largest investment in a Western company. Rio’s shares were suspended in New York last night and in Australia this morning.”
“Rio will raise $12.3 billion by selling stakes in its mines to Chinalco and a further $7.2 billion by issuing a convertible bond. When the bond converts into shares, Chinalco will raise its stake in Rio from 9 per cent to 18 per cent. The deal is subject to Australian regulatory approval.”
Though Australian regulators still have to review this deal before it becomes official, it tips all other players in the U.S. dollar pot to what China’s thought processes are as this monetary crisis deepens. Furthermore, with the global economy deteriorating even further since Chinalco’s bid, according to another article released today, Rio Tinto’s CEO Tom Albanese stated that shareholders initially opposed to the deal are now warming up to it. Regardless of the outcome of this deal, I believe that Chinalco’s bid serves as a microcosm for the larger desires of the Chinese government and as an accurate reflection of their true future intentions with their dollar-denominated assets – a desire to move many of their dollar-denominated reserves into hard assets.
Furthermore, when we consider the GCC (Gulf Cooperation Council comprised of Saudi Arabia, Kuwait, Bahrain, Qatar, the United Arab Emirates and Oman) nations’ massive petrodollar holdings, their similar desires to move petrodollars into hard assets, and their desire to not let China beat them to the punch (of offloading dollar assets), I think it’s a solid bet that the USD is set up for a sharp fall from its present position.
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This article has 71 comments:
A lower U.S. dollar in the recent past has brought higher U.S. stock markets - different now?
Exactly what does China gain by crashing the dollar?
Don't forget that US holds an enormous amount of gold and China relatively little.
You are clouding what the Chart implies with your own opinion about what Governments around the world may or may not do. And when you expect them to do whatever.
That being said, you must be telepathic.
From what I've read, the Gulf States do not expect to implement their "basket" until 2010 at the earliest.
Meanwhile, China is stimulating its Economy but will be willing to let USD denominated Commodities skyrocket while they do so, and at the same time devalue their Massive holdings. Sure.
3 months worth of Chart?? what about the entire period for the present run which started about 8 months ago from a low of 71, moved to the 88 and change level, corrected and has broken above the previous resistance.
The initial move was around 17, the correction was around 10(.6 times 17). My own belief is that it runs to 90 and change pauses and climbs to 95 on this which I consider to be the 2nd leg. The second leg equaling the first. This is my opinion.
Your Analysis provides my "stop loss", my question to you is: what is your "stop loss".
Where is the "I may be wrong" scenario?
Or is it that "you can't be wrong"?
Gold did something very similar on its way to $1,000 recently, paused at $920-930 before taking off.
...and no need to be such a 戏曲/戲曲 drama queen - of course China will seek mega-stores of hard assests, and should use their position as the US' banker to threaten any UniCal type resistance. But even $2T isn't what it used to be, and Middle Eastern interests are looking East for future investment apportunity. I haven't a clue how this will affect FX, but since I happen to be way long USD, I'm urgently concerned. "Don't fo what China says, do what China does" is probably a shrewd slogan to chant while waving a bankbook over ones' head.
Of course, if you live in the States, you hate reading this kind of info. Truth might be painfull, I know. From a third world investor, take my respectful advice, and start learning about devaluation, recession and inflation. Cause US is heading to it.
PS: the good news is that you´ll emerge stronger, no doubt about it, but it will take time, maybe decades.
Once its run its course, I expect it to resume its slide.
While, I believe parity is possible, I also believe 40 is probable. I am a firm believer in the eventual demise of the USD. But I am not going to fight the current Trend.
Leuthold was on Bloomberg this Morning, The Grizzly funds, his take on gold "I won't buy it until it goes to $850 or so."
Today's rally started in Asia on the Rumor that China would propose an additional stimulus package tommorow.
Me, I'll wait for Friday's numbers on jobs. If the market can rally after that, I will believe in a short term tradable bottom. IMO
Mr. Luo may not be playing poker at all. He just put on a poor soap opera performance. For real political significance, one should look at the results of Hilary's official visit to China, during which she dropped human rights as an issue before she arrived Beijing and concentrated on getting assurance from China to buy for Treasuries. Given that both sides came out of the meeting quite happy, you know that Hilary got her assurance and you don't want to bet for China to take part in any USD trashing.
The result is hardly a surprise, China has a lot to gain strategically by cooperating with the US. Any minor 'political' poker playing as the author imagine is meaningless.
The news about RIO is old and only a small part of China's current efforts to firm up assured access to resources they will need in the future. But as I commented to other articles, China can afford to spend at least $200B on this activity without any impact to their ability to continue buying US Treasuries. That is more than $100B to go.
Author better also check the current foreign reserve status of the GCC countries. Other than the Saudis who manage their investment conservatively, the others are knee-deep in trouble, and Dubai is not the busy place it used to be one year ago.
On Mar 04 03:24 AM Nikola wrote:
> And then?
>
> Exactly what does China gain by crashing the dollar?
>
> Don't forget that US holds an enormous amount of gold and China relatively
> little.
Rio Tinto deal has not been approved yet. There are strong resistance to the deal with Chinalco.
China is No.1 gold producer in the World. Communists are none believer in gold value. They think gold is only good for toilet seat. I don't know how much China will hoard before they start to sell. That will put all gold bugs on notice.
The Chinese are not playing double-bluff, if they were planning a massive offload they would not say anything and keep their cards close to their chest.
Deals have already and are being made behind the scenes. The Chinese being a surplus country have responsibilities or face being shut out of global trade. They know this, everyone knows this except the USD doomsday crowd.
If the Chinese dump Treasuries, they will hurt themselves primarily. Destroying the dollar will cause huge rise in commodities and completly destroy their export sector. Also the amercians/US allies would be quite happy buying their own debt back at huge discounts. Remember if necessary the Treasury can purchase the bonds back by expanding their balance sheet.
Also if the Chinese dump the treasuries, it will create an instant backlash from the US, for sure China would lose its access to the US market. Which many countries would give concessions to access. (ie by taking over the trade deficit from China)
What everyone forgets is the Chinese and the USA are not trading competitors but trading partners. They both dislike each other and are very paranoid about each other (rightly so). But certainly certainly need each other at this time. Mr Luo was actually talking up the dollar whilst protecting China domestically by saying that there is downside risk. The Chinese don't actually think there is downside risk.
Why would they? The fiscal spending by the Amercians is not inflationary in any sense. So much wealth and USD have been lost in the collaspe of the financial system that it will take years for the money supply to increase. We need at least 3-4 trillion to be put back into the system before we see an increase in the money supply.
We are in a deflationary phase where money supply/credit is contracting. Everyone is actually being far too optimistic stating the USD is going to drop because the US are expanding the supply of dollars.
Everyone thinks the USD falling is negative, but its not. It is ceratinly a positive, it is a sign that the flight to safety has ended.
When the USD drops is actually when things start to get better in the system. Which is certainly not yet, which is why it is breaking out. Its counter-intuitive.
Also if the Chinese dump treasuries and sell the USD. Then it will cause the RMB to soar through the roof. We all know they dont want this.
When things improve however the Chinese will
The Chinese will probably do the following:
Move the USD into hard assets in return for assisting in the financial crisis (purchasing treasuries)
Reduce imports faster than exports are reducing to keep the surplus growing. In order to fund their fiscal spending.
Look at long-term strategies to reduce dependence on the US.
As long as there are risks of countries defaulting on their debt. And huge global financial turmoil. There will always be a flight to safety to either the Euro or Dollar. So it is just a matter of is Europe in worse shape than the US. The answer is yes, hence the reason the USD is the destination of safety.
I personally think that we are going to see a huge default emanating from Europe so expect Euro weakness which will translate to dollar strength.
Over the next four years Americans will wake up! Short term there will be some falls & the dollar is vulnerable. But long term I am betting on the USA!!
I believe at some point this will happen any way but I dont think they will start this.Give it some more time and the markets will cause it to happen anyway.
I think the dollar will decline first, boosting gold, thus giving me more dollars to put into good growth companies once the fan is cleaned off.
Buying gold isn't anti-American, it's just plain common sense in times of great uncertainty. Good oil stocks should do well also.
Stockguy456 wrote:
> Your analysis does not take into consideration America's greatest
> asset - The hard working & determined American people. >
> Over the next four years Americans will wake up! Short term there
> will be some falls & the dollar is vulnerable. But long term
> I am betting on the USA!!
productive workers in one side, supper effective consumers
in the other.
Trading partners in the same boat and inter dependent one
from the other now. The Japanese economy in the middle, with a
super protected domestic market, no foreign investment dependent, competing with ChinaMerica for their markets and for the rest of the world markets. The yuan is the mirror of the US dollar, so both going down together to defeat the strong currencies and conquer their market via cheaper exports.
The key is how Japan aligns: EuroJapan? maybe, or the United Japanese States of LatinAmerica, possible. New nations will surge from all this mess: JapanAsean, my bet. The currencies can do anything now, but alliances will split winners from the rest.
Clearly China wants to extract the maximum possible from the US economy in its exploitation of the US consumer; there is no way a weak dollar facilitates this.
On Mar 04 06:09 PM bricki wrote:
> Chinese crashing the dollar is akin to self-immolation. Chinese currency
> is managed to be artificially undervalued relative to the dollar;
> not propping up the dollar by continuing to buy US treasuries is
> the same thing as letting the Renminbi appreciate.
>
> Clearly China wants to extract the maximum possible from the US economy
> in its exploitation of the US consumer; there is no way a weak dollar
> facilitates this.
"On a subsequent decline below 88, which in my mind is imminent..."
See? It's all in his mind, this little scenario...even though there's no evidence to support it. Just "if this happens, then THIS might happen"...etc, etc
"fleeing one sinking ship for another sinking ship is just not intelligent and is destined to end poorly for all involved parties."
Well, not ALL involved parties. I'm guessing that those who BOUGHT the dollar in Oct are quite happy with their decision. It certainly ended poorly for those who SOLD it, though.
No useful advice in this article. As you said...even a suggested stop-loss (for someone who might want to act on his analysis, and short the dollar) would have been useful. Seems to me that the author lacks conviction in his thesis.
On Mar 04 07:22 AM paultaut wrote:
> I beg to differ with your analysis.
>
> You are clouding what the Chart implies with your own opinion about
> what Governments around the world may or may not do. And when you
> expect them to do whatever.
>
> That being said, you must be telepathic.
>
> From what I've read, the Gulf States do not expect to implement their
> "basket" until 2010 at the earliest.
>
> Meanwhile, China is stimulating its Economy but will be willing to
> let USD denominated Commodities skyrocket while they do so, and at
> the same time devalue their Massive holdings. Sure.
>
> 3 months worth of Chart?? what about the entire period for the present
> run which started about 8 months ago from a low of 71, moved to the
> 88 and change level, corrected and has broken above the previous
> resistance.
>
> The initial move was around 17, the correction was around 10(.6 times
> 17). My own belief is that it runs to 90 and change pauses and climbs
> to 95 on this which I consider to be the 2nd leg. The second leg
> equaling the first. This is my opinion.
>
> Your Analysis provides my "stop loss", my question to you is: what
> is your "stop loss".
>
> Where is the "I may be wrong" scenario?
>
> Or is it that "you can't be wrong"?
>
With the US borrowing over 2 trillion this year China and the rest of he world do not have the US export dollar reserves to buy 4 times what they bought before. The US will need to borrow even more in the future as the economy does not perform as the optimistic are predicting.
The US government is lending its gold to drive down the price of gold. This can continue only as long as the US is eventually forced into really supplying gold. Given the worlds appetite for gold will increase as the dollars falls and other currencies become more unstable, eventually, REAL demand for deliveries of gold in the markets will force the price up.
This is not going to pretty.
Sorry, the debt will come to hunt America in the next 2-3 years.
I don't think Chinese and other Asian countries are ready to pay for Obama social extravaganza for too long. I think they will demand collaterals very shortly.
After you look at the negatives of the rest of the world, America's prospects don't look so bad after all. Think about this for a moment:
China's population is at once its greatest asset as well as its greatest liability, and perhaps its downfall.
Demographic Time Bombs (Ageing Population):
In the coming next few years. the growth in working-age Chinese will decrease to about 1/5 of its present numbers (10-15 million down to 3 million).
In a decade this number will actually become negative.
In the next 3 decades, China will face a shortfall in labor inputs as well as a trippling of the population over the age of 60, amounting to some 400 million seniors.
A 4-2-1 problem will have then been created in which one child supports 2 parents and 4 grandparents.
All of this as a result of the one-child policy which was forced upon them because of resource constraints.
Resource Constraints:
China holds nearly one quarter of the world's population, but its domestic resources are small in comparison. On a per capita basis, critical minerals are 50% below the world's average, arable land 60% below average, and water 75% below the world's average. Their heavy dependency on foreign oil will also carry over into a heavy dependency on imported food.
The sheer number of Chinese people will preclude the vast majority from ever attaining the life style of the average American. Chinese population is said to be somewhere around 1.4 to 1.7 billion. Their population estimate has a rounding error equal to the entire population of America.
Continued rampant economic growth in China is unsustainable for this reason. China's and the world's resources won't sustain it.
1. makes Chinese and Japanese goods more expensive
2. devalues China's dollar holdings
3. makes US exports (however diminished) more attractive to countries that would prefer not to import goods at the moment
Currency "fundamentals" are very difficult to gage. Many currency strategies seem to be momentum based. At some point I may short the dollar or go long Canadian dollars (or another currency) based on technicals but I am more intrigued with the following:
I am shorting long Treasuries via TBT and will likely add to position if it can break $50. Over a trillion in new bills, notes and bonds being issued by the Treasury this year alone, not to mention the run up in long Treasuries in the 4th Qtr. I know the Fed can take inventory nobody else wants but eventually that will limit their quantitative easing strategy (buying other assets - primary debt paper - to inject liquidity into the economy).
Hard Assets: Oil, Base Metals, & maybe even Agriculture. China is busy buying up oil and metal supplies at the current price levels. The wane in industrial demand is not likely to be picked up entirely by global stimulus infrastructure spending. Once a global economic recovery has kicked off along with our growing global population, combined with more expensive and difficult extraction for raw materials, could send DBB and DBO higher, which I don't own yet but did during the last run. I would use DBA for the agriculture exposure. One caveat, commodity prices usually follow stocks as the business cycle returns to an expansion.
In FX trading, a month is an eternity, 6 months is longer than my lifetime. Who cares about future trends. I will be broke in two weeks trading this advice.
Shorting a new breakout might make you a ton of money if you are right, but it's a poor trading technique unless you absolutely have inside info. New FX trends have legs and can carry on longer than I can stomach. But this isn't even good trade info, its mystic interpretations of some comment from months ago. At least give me some new info from Trichet or Bernanke, someone relevant.
The Chinese have absolutely nothing to gain from trashing the dollar since they own so many of them. But even then, this guy was reprimanded by the party and the next day was singing a different tune.
This stuff is irrelevant.
Hilarious to read all the 'patriotic' comments about we have it better and will do better than the rest of the world. Yeah we have it better (best debt level by far, best deficit by far, the most manufacturing, best UNIONIZED labor force etc. And when it comes to who will come out better think of two aspects. Imagine an average chinaman who works basically for rice and a couple of bean sprouts. If times get tough he will work twice as hard just for rice. Compare that to a unionized american worker. And number two look at the government. Chinese have not done anything horribly wrong in a very long time, as Washington has not done anything right in a very long time.
" Communists are none believer in gold value."
This is a very stupid and baseless statement. Stalin sent millions of Soviets to die in gold mines so he could industrialize his country.
Soviet Union initiated the WWII together with FDR. Both needed a big war.
Do not trust to the big media about the WWII history. Soviet started the WWII before Hitler and were expelled from "The Legue of Nation".
Soviets had the most advanced military technology at that time. Furthermore, Stalin had 5x times more modern tanks, combat aircraft, artillery, etc., than Nazi Germany, the USA, England and France combined.
The reason why Soviets almost lost to Nazi in 1941 is quite simple: Russian people did not want to fight and die for Stalin and his Jewish commissars. Stalin was a superb politician but he terribly miscalculated Soviet people hatred to Jewish Bolshevism with it concentration-extermin... camps and gas-chambers. 7 millions Soviet soldiers just surrendered to Germans without any fight in the first 2 months of the war.
But Hitler was stupid and was trying to enslave Russia. Only then Russian people united and destroyed Nazi invaders.
When a Chinese worker has to labor 4 hours to afford a Starbucks that an American worker can earn in 10 minutes, and when a country with 4% of global population produces 25% of world GDP- something's probably gonna change. A declining dollar (relative to the Yuan) is part of that change long term.
One point I'd make- much of future GDP growth will require much less in the way of raw materials. Think wireless instead of copper, solar instead of oil, cyberspace instead of paper. And China agriculture, like Africa, will benefit greatly by continued investment in water management (flood control as well as irrigation). That should be good for Caterpillar. And China tourism will be good for Marriott and Boeing.
Basically agree with your article. China doesn't want to crash the dollar but nor does it want to be left holding vast quantities of devalued paper.
It makes sense for them to seek maximum assurances from the U.S., drive a hard bargain over any tranches of U.S. bonds they buy, and diversify away into physical assets and internal investment, as fast as possible. All at the same time.
Recent negative publicity over the Euro zone seems to me to be designed to damp the Euro whilst a big player moves from U.S. to Euro.
What are you selling/buying now?
Rookie: What is "right on"? The article's assessment that the dollar will drop within a few days? Or that the GeoPolitical situation will evolve as described within a few months?
Given your view, what would you buy/sell today?
I really have no problems embracing the views or the belief in the future demise of the USD. Heck, the author may be entirely right in his assessment BUT not anytime soon, like in tommorow.
IMHO
Lets see the US is broke and the government is overspending by Billions......no make that Trillions now, like drunken sailors. About 300 economists place a full page ad in the Wall Street journal saying this is a bad idea. Of course the media ignores their plea to stop the insanity. Do you think the Chinese, Japanese and middle eastern advisors have a different opinion?
Everyone holding US treasuries made it by recycling the same cash over and over again. Sell consumer goods, loan back the profits, sell consumer goods loan back some profits. After several decades it is finally over for them.......so what.....the money has already been made.
Logically they should cut their losses, if you can call them losses. There is certainly no need to buy more US Treasuries when you are flush with cash. You can still buy US assets later when the dollar crashes against the rest of the world. Or buy US treasuries later if the rate is attractive. They really should buy non-US foreign assets right now like ................ what they are buying!
The Asian banking system is nowhere near as transparent as the US. We have NO idea what kind of sh!t isnot being revealed...
On Mar 05 01:36 AM donald.tramp wrote:
> Leuthold on Bloomberg this Morning, "the Asian banking system hasn’t
> been battered by subprime loans as badly as U.S. financial institutions."
>
>
> The Asian banking system is nowhere near as transparent as the US.
> We have NO idea what kind of sh!t isnot being revealed...
China will make no false moves in this crisis. They know history is going to continue on the other side of this, and they will not make any play that will blow up the world, financially speaking. The financial demise of the US and the west would certainly be the financial demise of China. They will not go all-in, because if they break their opponents, they are broke, too.
They will play cautiously, picking up many small pots (commodities) here and there , and hope none of the big players goes bust. They are playing for the next game, and like all good poker players, they are very patient.
A culture that has been around 5,000 years has a very different sense of time and history than one that has existed for less than 250 years. They know there are lots more poker hands to be played later, when they have more chips.
Since oil is an input to food, I'd say oil trumps food. The euro is wrecked and the Yen aint so strong either, so nix the basket. Gold is more a consumer product than investment, and yet oil is more essential, less a luxury.
I see oil as king of the commodities, and commodities king over the dollar. Comments on my 5th grade analysis?
The stock market should do well also the good as well as the bad has been sold off to extremes. Everyone should make some of their money back. Maybe, with luck, the shorts will get burned in a sudden rally.
We have a Major recall every year: groundmeat, tomatoes.
It becomes old news quickly. Maybe the Media is quick to hide our dirty laundry. IMO
The US military patrols a tiny Island off mainland China called Taiwan.
Did you know that Taiwan has the worlds 4th largest reserve of gold bullion.
So lets put this into a commom sense scenerio.
The Chinese could start unloading US tresuries and sink the US dollar to unpresidented lows.
This would make one wonder which scenerio China is playing out?
1)They want to continue selling to the Americans and with a collapsing dollar, demand for goods will plummet.( not a good idea).
2)What could be China,s intention is to drive the dollar down and then go after Taiwan when the americans have a crisis on their hands.
Yes the real coming threat may be a fight over Taiwans gold.
There's a difference between "growth" and "smart growth." If China doesn't come to terms with its wholesale environmental degradation, they will choke on and die from their own growth.
Take arable land for example:
"In 1996, arable land stood (officially) at slightly over 130 million hectares. In 2007, arable land slipped below 122 million hectares, approaching the central government's long-held 120 million hectare "critical mark" for food security, and the loss is accelerating.
Reports from the Ministry of Land and Resources in 2007 indicated that about 12.3 million ha—more than 10% of China’s arable land by current government estimates—is contaminated by pollution, and the situation is worsening.The ministry acknowledged that heavy metals alone had contaminated 12 million tons of grain and caused losses of $2.6 billion each year, and that the contaminated grain would ultimately be a health hazard.
In 2005, one third of China’s land mass was affected by acid rain; in some regions of the nation, all rainfall was acidic. With 26 million tons of sulfur dioxide discharged in 2005—27% greater than in 2000—China became the world’s largest sulfur dioxide polluter.
While degradation to China’s land is serious and worsening, water degradation, in the view of many observers, has reached crisis proportions.
16 of the world’s 20 most polluted rivers are in China. Moreover, air and water pollution combined with widespread use of food additives and pesticides have made cancer the leading cause of death in China.
Pollution has increasingly affected groundwater supplies throughout China.
A recent report found that 90% of the groundwater of China’s cities is polluted to some extent, which poses huge problems because nearly three-quarters of the population of China relies on ground water for drinking. SEPA Vice-Minister Pan Yue reported in 2007 that the quality of potable water in key cities had dropped by five percentage points as compared to the previous year; only 66 cities had source water
meeting national environmental standards.
Most of these reports come from urban areas in China, but the situation in rural areas doubtless is worse. Primary pollutants in rural areas are poisonous fertilizers and discharge of untreated sewage water. China uses more than 360 kg of fertilizer per ha, much higher than developed nations’ usage rates, and fertilizer is used inefficiently. Fertilizer runoff after rains causes contamination of water and water life. Most of the 280 million tons of sewage generated each year is untreated and directly discharged into rivers. Some 9 billion tons of sewage water is discharged every year. Overall, about one-third billion rural Chinese use unsafe drinking water.
Government officials, particularly in the national SEPA and MWR, as well as provincial and local environmental protection bureaus, have addressed these problems by tightening regulations and increasing inspections. Yet the problems persist and are increasing in frequency and severity.
At least 50% of the coral reefs off China’s coasts have disappeared in the past 20 years. Loss of coral reefs in turn increases the risk of
typhoon damage to China’s coasts.
Pollution from industries, agriculture, domestic sewage, oil and gas exploration, and fish farming has degraded China’s ocean environment, as has extensive runoff of silt from rivers and seabed dredging. As one NGO representative remarked: “All the coastal cities of China dump their wastes in the sea.” A State Oceans Administration official stated: “The coastal marine ecosystem is worsening, the quality of ocean water is deteriorating, and large amounts of pollutants are infiltrating from land to sea.
www.resourceinvestor.c...
www.springerlink.com/c...
We are very very lucky to have the world still trusting US dollar.
US consumed a lot, and is also the top 3 largest exporter too
What china want? Why not we turn the table around
Renminbi is much more expensive than USD..we buy a pair of made in china sneaker at 50 times the price from china...and china buys our microsoft office software at 50 times less the current price...
Poor or rich...just a thin line,,,dun betray the trust
i find no stocks that i wish to buy as investments, only short term trades for now, no bonds that i truly trust, but i don't want to be overloaded in metals. i am looking for a drastic drop before i will buy gold and silver again.
it does look like china is aggresivelly buying "real assets". i guess they would want to be as quiet and discreet as possible while getting out. i guess the other big holders are watching each other closely. i like the poker analysis.
seems the debt, deficit and increasing supply are out of hand. i expect too rapid inflation sooner or later. probably later as i am guessing when we actually do begin a turnaround inflation will come at an ever increasing pace.
the one thing that stays in the back of my mind is that china/russia are not, have not been, will not be, our friends. i asked on another post recently. how long will china be happy making our tennis shoes?
i think the euro has seen some pretty high speed printing too.
i keep hearing recomendations for farmland, rising food demand. already own a little. just trying to stay balanced. good luck out there. if someone gets a great idea hope you share it.
----------this is the only modus operandi that the smart are following now.
That's why water is such a big play out there.
A US company which will do well for years in China:
Calgon Carbon, CC.
Sold it around $16, looking to rebuy.
By Barbara Demick
February 2, 2009
Reporting from Beijing -- Chinese officials told the state media that birth defects are increasing at an alarming rate and that a major reason was degradation of the environment.
"The number of newborns with birth defects is constantly increasing in both urban and rural areas," Jiang Fan, vice minister of the National Population and Family Planning Commission, was quoted by the China Daily's weekend edition as saying in a recent conference.
He went on to say that every 30 seconds, a baby is born with physical defects in China.
The statistic isn't new:
www.reuters.com/articl...
"Birth defects in Chinese infants have soared nearly 40 percent since 2001"
But the official made clear something the government has long been reluctant to say: a major cause is pollution.
www.latimes.com/news/n...
Larger effects
Pan Jianping, a professor of the Women and Child Health Research Office at Xi'an Jiaotong University, warned in China Daily that the increasing birth defect rate among Chinese infants would soon become a social problem, influencing "economic development and the quality of life."
The Earthquake last year did some damage to their dams as well.
Jim Roger's has a Caveat on the Future of China, the water problem must be solved or it will stop them.
They have time to do it. Desalinization plants and Pipelines from south to north. IMHO
-------------thanks for that bit of info
by Mike on March 4, 2009
Jim Rogers appeared on CNBC (again) today, this time talking about a variety of topics including his expectations of civil unrest throughout the world. Some key points from the interview:
-- Expects civil unrest to emerge throughout the world including in the United States
-- Does not pay attention to government growth projections and does not believe China will grow at the current projected rate of 8%
-- Invested in water treatment and agriculture companies in China
-- Sees China’s water problem as the main risk to long term growth
-- Owns both gold and silver and notes that the IMF is selling lots of gold right now so prices could go down in the short term
-- Believes the current government stimulus is simply “delaying the day of reckoning”
www.variant-perception.../
I agree with your analysis. The point I make is that economic growth generally translates to a cleaner environment, not dirtier. This is why Europe, Japan and the US have led in development of environmental technologies, water reclaimation, air pollution control.
When people ask what the Chinese could buy with all the US dollars, one of the things I mention (in addition to airplanes and earthmoving equipment) is pollution control and environmental reclaimation services, technology, and equipment.
The problem is the Chinese are loathe to buy stuff unless their consumers just have to have it- and even then they want it made in China. This is one of the reasons I have touted monetizing some debt to continue the drop of the dollar- if the Chinese see dollars weakening instead of strengthening, they'll be more willing to spend some of them on imports.
Weakening the dollar is a very unpopular position amongst the dollar-denominated investors here, but it's the only way to long term economic strength, IMO. Unless you like the idea of holing up with your cash and your guns...
My opinion from the EU is that: eastern european countries are facing huge financial difficulties, and short term it can have an affect on weakening the euro and strengthening the USD. Longer term (9-15 month?) you can see what happened in May 1930 in the USD (and the rest of the world).
It looks like the history didnt change. If you read this, you (and me) have a huge unluck in our age to see what will happen. I guess you can jump from one to another, you can earn some money in this case, but finally there are no safe havens, and the result of this activity finally will be zero.
I don't know, if we can stop this or not. What if the IMF is lending money directly to the citizens? Lets say, every citizen in the USA/EU zone receive 3000 usd/euro?
In USA: 300million citizen: 900 billion USD
In the EU: 400 million citizen: 1.200 billion EUR
The citizens will be happy to receive this cash, and they will buy, sell, save anything for this amount of personal money, which will help to restart the growing in all the markets and it will support the growing of the companies again. So finally, the governments will receive more taxes and the cycle restarts again, and everybody is happy. Do you think it is a possible way of restart the global economy?
The USD dropped almost a 100% against the commodity currencies during the last 10 years. Last year, the Euro which had been as low as .82 hit a high of 1.6 or so.
The current strenght in the USD is a contratrend Bull Trap, it only started around 8 months ago, and it is very, very Unpopular with all of the International companies like IBM, CAT, KO, MCD, etc.
Since Dollar strength is a relatively new phenomena, I doubt that its weakening again will be any great shakes for the Chinese. Besides, The USD's strength did a number on the Currencies of the Commodity Producers, this is where China is spending its money.
S. Korea is strenghtening its ties with China, They have the earthmovers and steel that China will use. Kubota, Posco. (Buffet likes Posco, bought Posco). Korea can undercut anything the US can send China's way.
Airplanes? China is developing its own Commercial Airplane Industry, Solar? Most of the traded Solar companies are Chinese, even Canadian Solar(CSIQ), computer memory? Korea we buy from them too. Intel's CPUs? forget them, China has developed its own Quad Cores based on MIPS, they start shipping it internationally next year. Cars? etc. What do they need from use that they can't get anywhere else Cheaper.
The USD has to depreciate against the Currencies of the Rest of the World not just China's.
Calgon Carbon is doing great in China.
there is a reason why the dollar has been, and continues to be strong. we have a global debt crisis, and most of this debt is denominated in dollars. banks worldwide have trouble financing their dollar liabilities, as their dollar-denominated assets (CDOs, MBS, etc) have crashed in value. this creates a steady stream of insatiable dollar demand, and is set to continue to support the dollar for quite some time, especially against the euro. it matters little that economic fundamentals in the US are no less catastrophic as they are elsewhere. the dollars HAVE to be bought, like it or not.
You are absolutely right. I do not see the USD falling against the Euro anytime soon. The German phobia about a Weimar repeat has and will continue to weaken the economic conditions in Europe.
Then there is that $500 Billion foreign credit swap that will have to be repaid eventually, postponed now to Oct. from Apr. 2009. This loan will have to be paid back in USD.
If there is any chance that the US economy revives before Europe, that will cause another influx of Dollar buying.
For now the trend is up. My current target is 95-96.
IMHO
keeping that in mind thats probably why we (Cananda & the US) have high unemployment today while our so called Blue Chip Companies like GE & GM are going bankrupt.
lets keep letting our big corporations go elsewhwer to make bigger profits which have not translated into anything productive in North America.
All we have done is exported our jobs to other countries.